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Limited Tax Deductions May Make Keeping Home Costlier

Posted on in High Asset Divorce

Limited Tax Deductions May Make Keeping Home CostlierThe elimination of the alimony tax deduction has rightfully received the most attention amongst the recent changes to the federal tax laws. Not being able to deduct your spousal maintenance payments from your federal taxes is changing how divorcees negotiate their maintenance. However, changes to tax deductions related to real estate could affect whether you want to keep a home or other real property after a divorce. People in high-asset divorces may have fewer tax deductions available to them.

Tax Deductions

One of the goals of the federal tax reform law passed in 2017 was to simplify the tax code. The standard deduction for a single filer increased from $6,000 to $12,000, but many other deductions were reduced or eliminated, including:

  • Capping deductions for state and local income and property taxes at $10,000 when filing as a single person or a married couple filing jointly, or at $5,000 for a married person filing separately;
  • Eliminating deductions for home equity loan interest unless the loan was used to pay for improvements towards a primary or secondary home;
  • Reducing the mortgage interest tax deduction from $1 million to $750,000 if the mortgage was obtained after Dec. 15, 2017; and
  • Eliminating deductions for foreign real estate taxes.

Some of the people who stand to lose the most from the tax deduction changes are those who own multiple real properties and those who live in areas with high local income and property taxes. Even though the standard deduction has doubled, people in a high-asset divorce may have been able to save more money on taxes with the previous deductions intact.

What to Do with Real Property

When deciding whether you want to keep a marital home or other real property, you now must consider that you will no longer receive the same tax savings for owning the property. Annual property taxes in DuPage County cost $5,555 for a home assessed at $250,000. You can maximize the property tax deduction by filing jointly with your spouse rather than filing separately. You can sell the property but will have to pay a capital gains tax on the proceeds of the sale. Fortunately, the exemption on the capital gains tax is unchanged. You can exempt the first $250,000 on the sale as a single filer or $500,000 as a couple, as long as you lived in the home for at least two years before the sale.

Contact a DuPage County Divorce Attorney

There are tax implications when you decide how to divide your marital properties during a divorce. A Warrenville, Illinois, divorce attorney at Calabrese Associates, P.C., can help you choose which properties you want to keep. Schedule a consultation by calling 630-393-3111.

Source:

https://money.usnews.com/money/personal-finance/taxes/articles/tax-deductions-that-disappeared-this-year

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